Moody’s maintains sovereign debt rating

Global credit rating agency Moody’s Investors Services has maintained Cambodia’s B2/stable sovereign rating, stating in its latest credit opinion on the Cambodian government that the rating was underpinned by the Kingdom’s credit strengths, specifically its healthy growth prospects and a stable external payments position.

However, it warned of the dangers of Cambodia’s rapid private-sector credit growth, the high level of dollarisation and the narrow economic base vulnerable to external shocks.

According to the Moody’s report, the credit strengths of Cambodia’s rating include the robust growth supported by garment exports, tourism and sizeable foreign direct investment (FDI) inflows. The positives were offset by Cambodia’s “very low” score on government effectiveness, rule of law and the ability to combat widespread corruption.

In Channy, president and group managing director of Acleda Bank, said while the renewed B2 rating was not great, it was not bad either. He said the government should strive to get a rating of Baa3 or upward in order to further attract investor confidence and to lower lending rates linked to the Kingdom’s international risk profile.

“If the country gets a lower rate, the borrowing interest rate from international financial institutions tends to be higher,” he said yesterday.

He added that overall the rating was adequate and mirrored the country’s current economic prosperity.

Hiroshi Suzuki, CEO of Business Research Institute for Cambodia, said that major factors for a Moody’s rating was the scale of the economy and size of the national income. He added that institutional strength was not something Cambodia could easily change and that the rating was appropriate.

“In order to attract FDI to Cambodia, this kind of rating is indispensable,” he said. “Although the rating of B2 is not such a good rating, this kind of analysis could help investors make decisions.”

Sim Dara, head of research department at Yuanta Securities (Cambodia) Plc, said the rating allowed investors to judge the level of risk and would factor into the required rate of return on investment and lending.

“While investing in Cambodia may give investors higher returns than investing in their home country, if the return is not high enough to justify the country risk they take, they may decide not to invest,” he explained.

“The Moody’s rating may also serve as a benchmark for sovereign bond valuation at the time of issuance,” Dara said, adding that Cambodia’s lacklustre B2 status could hinder the government’s efforts to issue corporate and government bonds.